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One of Britain’s biggest identity theft protection providers is at the centre of an impasse between its creditors and the City regulator over a plan to compensate the victims of another consumer mis-selling scandal.

I have learned that CPP Group (LSE: CPP.L - news) , a major insurance company, is attempting to assemble a restructuring through a process known as a scheme of arrangement that would enable the company to meet compensation claims likely to run to tens of millions of pounds.

The Financial Services Authority (FSA) is attempting to wrestle a consortium of major banks, including HSBC (LSE: HSBA.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) , into agreeing a financial package that would enable CPP to provide redress to customers who were allegedly mis-sold its products.

The scheme of arrangement would be a court mechanism to resolve the negotiations between CPP and the banks by ring-fencing a pot of money set aside for compensation. It is one of the options at an advanced stage of consideration by CPP.

People familiar with the discussions say, however, that some of the banks are resisting the FSA’s efforts to corral them into a settlement, arguing that the contributions they are being asked to make are disproportionate to their role in selling CPP products.

“Some of these products were decent products and some of them were not, but the banks were as often as not simply introducers of customers,” one bank source said.

The talks between the various parties are ongoing and people involved in them say that they are hopeful of a positive resolution.

Without an agreement, CPP has cast doubt on its ability to avoid bankruptcy. It has already set aside more than £20m for potential compensation claims.

In a statement issued today, a CPP spokesman said:

“Our discussions with the regulators, pursuant to the agreement in principle with regulators, continue to be constructive.”

CPP, which calls itself an “international life assistance provider”, is based in York and employs approximately 2,000 people. It operates across 16 countries and expanded rapidly after listing on the London Stock Exchange (LSE: LSE.L - news) in 2010.

In August, the company updated the City on its discussions with the City regulator over a deal to compensate customers who were potentially victims of mis-selling:

“We have continued to work closely and constructively with the FSA in the period. Our discussions have been purposeful and focused as we make every effort to move towards a final resolution with the regulator, as well as final details regarding the form, structure, details and timing of customer redress on which agreement was reached in February. Resolution of these matters will enable us to progress and provide a greater degree of certainty for the business and our stakeholders.”

CPP is one of several specialist insurers to have fallen foul of regulators in recent times. Homeserve (Dusseldorf: XHSA.DU - news) , which provides insurance against household mishaps, was also the subject of mis-selling allegations last year.

Britain’s big banks have also been forced to set aside billions of pounds to compensate customers who were inappropriately sold payment protection insurance and interest rate swaps, with the final bill certain to rise substantially.

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